Shady lenders still pose problems for troops, veterans

Jul. 31, 2013 - 05:11PM
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Despite improvements in enforcement of consumer protection laws and education for service members and veterans, problems persist with loans, veterans’ benefits and retired pay and pensions, according to witnesses testifying Wednesday before the Senate Veterans’ Affairs Committee.

In the last six months, the Consumer Financial Protection Bureau has received 1,939 complaints related to the financial protections of the Servicemembers’ Civil Relief Act, said Holly Petraeus of the bureau’s office of servicemember affairs.

About half of the complaints involved mortgages, 18 percent were about credit cards and 13 percent involved banking, she said.

Petraeus was joined at the hearing by representatives from the Justice and Defense departments to testify before the committee overseeing the legal and financial protections for active and reserve service members, veterans and their families. Chairman Bernie Sanders, I-Vt., said his goal is to improve protections, where needed, and to press the federal government to for “aggressive enforcement.”

More attention has been paid to mortgage problems — specifically, when banks foreclose on service members and veterans who were supposed to be protected from such actions — and there have been improvements, but Petraeus said her office still hears about lenders who provide misleading or incorrect information to borrowers or who refuse to honor financial protections provided under law.

For example, she said, some lenders incorrectly tell service members they must provide a letter from their commander or a copy of “certified” orders to have loan interest rates capped at 6 percent, as called for under the law.

Some officers have been told they cannot be provided reduced interest rates if their orders don’t contain end dates, which are not usually included. And lenders have terminated reduced interest rates after one year because they did not receive evidence that active-duty service had continued, she said.

Loans aren’t the only problem, Petraeus said. There are also widespread complaints about individuals and companies that offer to help veterans qualify for aid and attendance allowances, intended for those who need assisted care, using that Veterans Affairs Department benefit “as a hook to sell their services to elderly veterans.” For example, they might require the veteran to sign up for financial services, or even move assets into an irrevocable trust, she said.

Sanders said he has heard the same complaints. “I hear from veterans about scammers targeting their pensions or organizations improperly holding themselves out as an extension” of VA, he said.

Advance payments on military retired pay and on veteran pensions also are being closely watched, Petraeus said. Generally, the offer is to provide a lump-sum payment in return for future monthly benefits being turned over to the lender.

“These offers usually amount to pennies on the dollar, and may be in violation of the law regarding assignment of pension benefits even though they are disguised as loans,” she said.

To attract customers, the pension-advance companies have patriotic names and “American flags on the website to match,” she said.

Army Col. Paul Kantwill, director of the Defense Department’s Office of Legal Policy, said small consumer loans continue to be a problem despite new laws capping interest rates.

“Our financial counselors and legal assistance attorneys still see clients who have payday or vehicle title loans,” he said.

In some cases, lenders are using the Internet or operations based overseas to evade existing law, Kantwill said. Some lenders “still attempt to skirt or evade the law by entering into loans that charge interest greater than 36 percent and contain terms that have been modified” to avoid having to comply with the Military Lending Act, which became law in 2007.

Defense officials also are closely watching the use of allotments from service members’ pay to cover loans, Kantwill said.